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CDSL issue shows IPOs riding market euphoria; tread carefully

A strong equity market performance is generally followed by a flurry of initial public offerings (IPOs). Euphoria grips the Street and IPOs – whether reasonably priced or not— get through with ease. 

Conversely, primary market frenzy is often seen as harbinger of market peaking. This trend is playing on Dalal Street these days. But retail investors who ignore valuations of IPO in this euphoria often end up getting the wrong end of the stick. 

Analyst warn that investor who wish to hold new papers on quality parameters should pay heed to valuations. “Many a times, companies with very high pricing also attract good subscriptions. Remember the Reliance PowerBSE -1.35 % issue in 2008? It did very well, but we all know what happened next. One should always look at valuations before putting money in an IPO. If you find an IPO more than fairly priced or aggressively priced, ignore it and look for opportunities in the secondary market instead.

Some of the recent IPOs such as D-Mart, Hudco and S Chand saw spectacular response to their offerings, but CDSL’s 170-times subscription earlier this week eclipsed them all. “No doubt, the CDSL issue looked reasonably fine, because we have hardly about three crore demat accounts in the country and we are probably looking at about six crore demat accounts in next five years. There is a huge opportunity for CDSL and that is the reason it got good subscription.

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